Saturday, May 8, 2010

Customer-Centric Capitalism

"What is the primary responsibility of a business? Renowned management professor and writer Peter Drucker gave a succinct answer to this question in his 1954 book The Practice of Management: “A company's primary responsibility is to serve its customers . . . Profit is not the primary goal, but rather an essential condition for the company's continued existence.”

For the last thirty years, maximizing shareholder value has replaced customer value as the key objective of many companies. But, a number of experts are now raising questions about this widespread business practice and the extreme preoccupation with short term profits that inevitably results from putting shareholders over customers.

A 2006 study co-sponsored by the Business Roundtable and the CFA Institute concluded that: “the obsession with short-term results by investors, asset management firms, and corporate managers collectively leads to the unintended consequences of destroying long-term value, which decreases market efficiency, reduces investment returns, and impedes efforts to strengthen corporate governance.”

in reference to:

"“For three decades, executives have made maximizing shareholder value their top priority.  But evidence suggests that shareholders actually do better when firms put the customer first.”"
- Irving Wladawsky-Berger: Customer-Centric Capitalism (view on Google Sidewiki)

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